Stakeholders bemoan CBN’s retention of rates

Stakeholders in the country’s foreign exchange market have given the Central Bank of Nigeria (CBN) knocks over its decision to retain the Monetary Policy Rate (MPR) at 13 per cent with a corridor of +/- 200 basis points around the midpoint and a Cash Reserve Ratio (CRR) of 31 per cent at the end of its Policy Committee meeting at the weekend.

Analysts expressed the opinion that the bank’s squeamishness in adopting a more aggressive pro-growth policy was a demonstration of its insensitivity to the challenges that confronts the economy, especially the real sector.

Chief Economist, Manufacturers Association of Nigeria (MAN), Ambrose Orushe, was of the opinion that the MPC’s decision to retain policy rates, especially MPR, means funds would continue to be out of the reach of manufacturers over the third quarter of the year 2015.

“Banks prefer to invest in treasury bills because of the relatively higher risk return ratios that they get compared to lending to the real sector.

The retention of MPR, means that the past is frozen in ice. We thought the MPC would lower the MPR so that banks would be able to lend to manufacturers at lower rates,” he maintained.

Orushe was of the view that the fear of taking policy risks compelled the MPC to retain rates, which, according to him, was not good for the economy.

The MPC at the end of its 245th meeting in Abuja, issued a communiqué saying it had decided to retain the MPR at 13 per cent with a corridor of +/- 200 basis points around the midpoint; the CRR at 31 per cent; and the symmetric corridor of 200 basis points around the MPR.

“On inflation, the Committee stressed that some of the drivers of the current pressure on consumer prices were transient and outside the direct influence of monetary policy.

Pressure on food prices is expected to gradually wane as the planting season gives way to harvests in the months ahead.

Early resolution of fuel scarcity would dampen transportation costs and improve food distribution across the country while improvements in electricity supply could steady output at lower costs,” the communiqué signed by the CBN Governor, Mr. Godwin Emefiele, read.

Hallmark had reported last Thursday that the MPC would not tamper with the rates and forex policies.

For well-known economist, Henry Boyo, the step taken by the MPC indicates that all the strategies they have employed in the past to improve the economy are not working.

According to him, it means there is a breakdown of monetary policy in the country, he argues,

“It means that efforts they have taken in the past, all the strategies applied the past have not yielded the required result. Even the reduction of the Cash Reserve Ratio (CRR) for public and private sectors has not made much impact,” Boyo noted.

He urged the CBN to find a way to mop up the excess liquidity in the system, which he claimed is one of the reasons the Nigerian economy is presently going through hard times, although some economists Hallmark spoke with share a contrary opinion.

One of them argued that government which is the largest spender in the country, has very little revenue to spend, so there was no way there would be excess liquidity, more so, the CBN has been mopping cash from the system on continues basis.

The Lagos Chamber of Commerce and Industry (LCCI) in its reaction to the outcome of the MPC meeting, expressed displeasure over its decision not to review the list of the 41 items the CBN tagged not valid for forex, even after complaining that some of these items are intermediate goods, which serve as raw materials for manufacturers.

“The decision by the CBN to retain the current demand management model in the foreign exchange market does not reflect the desired sensitivity of the CBN to the plight of various stakeholders over its foreign exchange management strategy.

The present model has profound collateral consequences for the real economy, the transparency of the foreign exchange management, vulnerability to corrupt practices and distortions in the economy.

“Submissions by stakeholders in the economy to the CBN to review its list of items not valid for foreign exchange were completely ignored by the MPC.

The matter was not even mentioned in the communique.  The LCCI is gravely disturbed by this disposition,” the President of LCCI, Alhaji Remi Bello, argued in a statement, which Hallmark obtained a copy.

The Chamber said it is worried about the way the apex bank has continued to apparently  trivialize the present developments in the parallel market segment of the foreign exchange market, noting that the unprecedented disparity in the rates curiously seemed not to bother the CBN.

LCCI said, “We submit that the widening disparity in rates has profound implications for the economy.

 It is an incentive for round tripping, it would create distortions in the economy, it will lead to an uneven playing field in the economy, it would make the management of the foreign exchange market vulnerable to all manner of sharp practices and corruption.

The large informal sector of the economy is fed largely from this segment of the market. These are issues the CBN cannot afford to ignore.”

According to the Chamber, the factors driving inflation at this time are not transient as claimed by the MPC, adding that the continued depreciation of the currency and the structural issues are major factors putting pressures on prices and these are not transient.

Meanwhile, it concurred with the CBN’s stance that monetary policy instruments needs to be complemented with fiscal policies to achieve the desired economic outcomes as monetary policy has severe limitations in the present circumstances.

“We share the concern of the CBN that there are no easy choices given the dwindling crude oil price, weak accretion to reserves, the fiscal position of government and the pressure on foreign reserves.

We also share the submission of the apex bank that the federal government needs to unfold its economic agenda to boost investor’s confidence and reduce uncertainty in the economy,” the Chamber stated.

Some analysts also asserted the CBN was restricted to retaining the rates because of the lack of fiscal policies that would have buoyed up some of its monetary activities.